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Analysts Warn UK Entrepreneurs Of Being Over-Confident In Cash Management

The U.K. saw an insolvency spike in Q1, according to data from insolvency firm Hudson Weir. The stats, released last week, saw a 4.5 percent increase in Q1 insolvencies compared with Q4 2016, hitting nearly 4,000 businesses that shuttered operations.

“Our experience in terms of the types of companies we are liquidating is borne out by the statistics. It’s a different world now – in terms of political and economic events, it’s probably the most uncertain time since the Second World War,” said Hudson Weir director Hasib Howlader in a statement at the time. “It’s no surprise that certain industries have been hit – construction is bound to suffer because people had less of an appetite for risk than before.

The common thread across these insolvencies? Inadequate cash flow, Hudson Weir added.

The firm’s latest analysis came out the same day as another report from KashFlow, a small business accounting software firm, that could offer deeper insight into some of the nation’s cash flow problems. KashFlow surveyed entrepreneurs and micro-business owners with 10 employees or fewer to examine how these professionals tackle the books.

Interestingly, entrepreneurs are quite confident about their cash management capabilities. But when KashFlow’s data is placed in the context of Hudson Weir’s, it could suggest that they’re too confident. We broke down KashFlow’s data below:

 

32% of entrepreneurs said their finances leave them feeling stressed, which is no surprise considering they are often the sole professional on their team to take care of cash management processes such as accounting.

2.5 million working days are spent by entrepreneurs managing their finances, collectively, of course. With about 5.3 million micro-businesses in the U.K., KashFlow estimates that entrepreneurs spend 3.6 business hours each month on bookkeeping.

16 financing jobs (at least) all fall on the shoulders of entrepreneurs, including invoice creation, chasing late payments, income and expense recording, tax review, payroll, accounts payable, accounts receivable, cash flow forecasting, and reviewing capital investment needs and funding.

87% of entrepreneurs say they are either “really good” – or at least “not bad” at managing the books  and handling the multitude of financial responsibilities like payments and cash flow management. Surprisingly, just 6 percent said they admit their financial management abilities are “not good.” But with insolvency rates signaling an uptick, those confident entrepreneurs may want to step back and reexamine exactly how they could improve their financial management strategies to avoid closing the doors for good.

“It’s really encouraging to see that many of those surveyed feel confident and in control when it comes to their business finances, especially as we know it‘s not their favorite thing to do,” said KashFlow CEO Oliver Shaw in a statement. “However, the figures suggest that many could be underestimating how long they actually spend each month, or perhaps overlooking important finance management tasks which will help them stay in better control of their business in the long term.”

According to KashFlow’s analysis, issues such as non-compliance can arise for entrepreneurs who are not diligent enough with their finances. Even simple mistakes on things like tax returns can bring major consequences

Sole traders and micro-businesses made a huge contribution to our economy, and our research shows they’re a really passionate and motivated group, who love being their own boss,” Shaw says. “Staying on top of finances is vital for them to be compliant and ultimately stay afloat, so they should consider tools that allow them to do it in a smarter and more efficient way.”

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New PYMNTS Report: Preventing Financial Crimes Playbook – July 2020 

Call it the great tug-of-war. Fraudsters are teaming up to form elaborate rings that work in sync to launch account takeovers. Chris Tremont, EVP at Radius Bank, tells PYMNTS that financial institutions (FIs) can beat such highly organized fraudsters at their own game. In the July 2020 Preventing Financial Crimes Playbook, Tremont lays out how.

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